A portfolio approach to multi-product newsboy problem with budget constraint

Authors:
Bin Zhang;Zhongsheng Hua
Affiliations:
Lingnan College, Sun Yat-sen University, Guangzhou 510275, PR China;School of Management, University of Science and Technology of China, Hefei, Anhui 230026, PR China
Venue:
Computers and Industrial Engineering
Year:
2010

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Abstract

This paper investigates a portfolio approach to multi-product newsboy problem with budget constraint, in which the procurement strategy for each newsboy product is designed as portfolio contract. A portfolio contract consists of a fixed-price contract and an option contract. We model the problem as a profit-maximization model, and propose an efficient solution procedure after investigating the structural properties of the model. We conduct numerical studies to show the efficiency of the proposed solution procedure, and to compare three models with different procurement contracts, i.e., fixed-price contract, option contract, and portfolio contract. Numerical results are shown to demonstrate the advantage of the portfolio model, and sensitivity analysis is provided for obtaining some managerial insights.